Demolition of dry bulk ships in the first four months of 2019 surged by 120% compared to the same period of 2018, according to international shipping association BIMCO.
The rise was mostly fueled by demolitions of Capesize ships, which increased from 1.1 million dwt between January and April of 2018 to 3.4 million dwt in the first four months of 2019.
BIMCO said that the 18 Capesize ships that were demolished this year “sailed away from the poor market conditions faced by these larger vessel sizes since January 25, 2019.” In the almost three months since then, Capesize earnings have remained below USD 9,000 per day, falling to USD 3,460 per day on April 2, 2019.
Capesize earnings have averaged USD 8,079 per day since the start of the year, representing a loss making level as BIMCO estimated that a Capesize ship needs to earn around USD 15,300 per day to be able to cover daily costs.
In 2019 the Capesize market has faced several shocks, including the dam collapse in Brazil and bad weather in Australia, but it also faces more long term challenges such as the falling Chinese iron ore demand.
“Due to the falling demand for commodities traditionally carried by Capesize ships, limiting fleet growth will become even more important if freight rates are to be profitable,” Peter Sand, BIMCO’s Chief Shipping Analyst, said.
“For that reason, rates of demolition of Capesize ships in 2019 and 2020 are essential to addressing the fragility of the market balance,” he added.
Despite an increase in demolition for the period, the Capesize fleet grew due to the delivery of 5 Valemax, 6 very large ore carriers (VLOCs), one standard Capesize and a baby Capesize ship, amounting to 3.8 million dwt entering the already crowded market.
In addition to this, deliveries scheduled for the rest of 2019 as well as 2020 and 2021 paint a bleak outlook for the market balance, according to BIMCO.
A further 6 Valemax, 46 VLOCs, 17 standard Capsizes, and 2 baby Capes are scheduled to be delivered in 2019. A mammoth 24.8 million dwt, including 3 Valemax, 79 VLOCs, 20 standard Capsizes and 8 baby Capes, has been ordered to be delivered in 2020, and deliveries of 8 million dwt are already expected in 2021.
Because of delays and cancellations, BIMCO expects that around 11.1 million dwt will be added to the fleet in the rest of the year, followed by 20.4 million dwt in 2020 and 10.97 million dwt in 2021.
“Demolition activity may rise somewhat with the upcoming implementation of the IMO’s 2020 sulphur cap and Ballast Water Management convention. Even if new regulation leads to more demolition, the market for large dry bulk ships is likely to face continued pressure as there is little potential for substantial growth on the demand side,” Sand said.
Prospects for dry bulk ships smaller than Capesize are less concerning as the market conditions are more stable. Despite some disruption to trade lanes due to the trade war, the markets for these smaller ships face fewer disruptions on both the demand and supply side.